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FEDERAL RESERVE BANK
OF NEW YORK
[
Circular No. 9519 ~|
July 1, 1983
BANKERS’ ACCEPTANCES
— Reservability of Ineligible Acceptances
— Application of Bank Export Services Act to Eligible Acceptances
— Proposed Definition of Participations in Acceptances
To All Depository Institutions, and Others Concerned,
in the Second Federal Reserve District:
Following is the text of a statement issued by the Board of Governors of the Federal Reserve System:
The Federal Reserve Board took two final actions and issued a new proposal for comment in connection with bankers ’
acceptances. One of the final actions was an amendment to Regulation D, dealing with the reservability of ineligible
acceptances. The other final action and the draft regulation issued for comment related to bankers’ acceptances under the
Bank Export Services Act (BESA).
Adoption of the final rules follows consideration of comment received on proposals published in February.
Regulation D now applies reserve requirements to ineligible* acceptances only when the creating institution itself
discounts and sells the acceptance. Under the amendment to Regulation D adopted in final form by the Board:
— An ineligible bankers’ acceptance not held in portfolio by the creating bank will be treated as a reservable deposit
regardless of whether the depository institution that created the ineligible bankers’ acceptance, or another,
subsequently discounts and sells it.
The Board took this action in order to prevent the use of so called “ agented” acceptance arrangements with third
parties from being used as a device to avoid reserve requirements.
The Bank Export Services Act raised the limits on the aggregate amount of eligible* bankers ’ acceptances that may be
granted by an individual member bank from 50 percent of the bank’s capital stock and surplus (100 percent with the
permission of the Board) to 150 percent of the bank’s capital (200 percent with the permission of the Board). The Act also
applied these limits to U.S. branches and agencies of foreign banks where the parent bank has, or is controlled by a
company or companies with, over $1 billion consolidated bank assets worldwide. These limits do not apply to nonmember
banks.
The BESA also provided that any portion of an eligible bankers’ acceptance created by a member bank or by a U.S.
branch or agency of a foreign bank covered by the BESA that is sold through a participation agreement to another covered
bankt should not be included in the calculation of the creating bank’s limits on bankers’ acceptances. Instead, the amount
of the participation in the acceptance is to be applied to the limitations applicable to the covered bank that purchased the
participation. The BESA also provided that eligible bankers’ acceptances growing out of domestic transactions are not to
exceed 50 percent of the aggregate of all acceptances authorized for a covered bank.
* “Eligible ” bankers’ acceptances are not subject to Federal reserve requirements. They must meet criteria in Section 13 of the Federal Reserve Act including
requirements that the acceptance (1) grows out of a trade transaction involving exporting, importing or domestic shipment of goods or storage of readily
marketable staples and (2) has a maturity of less than six months. “ Ineligible” acceptances are those not meeting these requirements.
t “Covered banks” — those subject in BESA to quantitative limits on eligible acceptances — are member banks and U.S. branches and agencies of foreign
banks whose parent foreign bank has or is controlled by a foreign company that has worldwide consolidated bank assets of $1 billion or more. All other
institutions — ”non-covered” banks — are not subject to BESA quantitative limits on eligible acceptances.
In the other final rule issued today, the Board clarified that:
— Eligible acceptances created by covered banks and sold through participations to non-covered banks (including
Edge and Agreement corporations) are subject to the quantitative limitations of the selling covered banks; and
— Eligible acceptances created by non-covered banks (including Edges) sold through participation agreements to
covered banks are included in the quantitative limitations applicable to the purchasing covered banks.
— The parent of U.S. offices of foreign banks is defined as the institution that owns the U.S. branch or agency “ most
directly” and the capital of the parent is defined in accordance with procedures currently used for reporting to the
Board on F.R. Y-7.
— The 50 percent limitation on eligible acceptances growing out of domestic transactions is applied to the maximum
permissible amount of eligible acceptances that a covered bank could create, not just of outstandings.
In addition to these final rules, the Board issued for comment a proposed definition of participations in acceptances
that would be eligible for the BESA acceptance limitations covered in the final rule just issued. Under this proposal, such a
participation would have to meet certain minimum requirements, which are consistent with the Act and the legislative
history, including a written agreement between the bank acquiring the participation (junior bank) and the accepting bank
conveying the participation (senior bank) under which:
1. The junior bank acquires the senior bank’s claim against the account party to the extent of the amount of the
participation that is enforceable in the event that the account party fails to perform in accordance with the terms of
the acceptance; and
2. The senior bank obtains a claim against the junior bank to the extent of the amount of the participation that is
enforceable in the event the account party fails to perform in accordance with the terms of the acceptance.
The Board requested comment by August 5, 1983.
Enclosed is the text of (a) an amendment, effective June 20, 1983, to Regulation D, on the application of reserve
requirements to ineligible acceptances, and (b) an interpretation, effective July 20, 1983, on the application of the
BESA to eligible acceptances. In addition, printed on the following pages is the text of the Board’s proposed
interpretation to clarify the meaning of participations in bankers ’ acceptances for purposes of the bankers ’ acceptance
limitations of the BESA. Comments on the proposal should be submitted by August 5, 1983 and may be sent to our
Regulations Division.
A
nthony
M.
Solom on,
P r e s id e n t.
2
FEDERAL RESERVE SYSTEM
12 CFR Part 250
[Docket No. R-0474]
Miscellaneous Interpretations
a g e n c y : Board of Governors of the
Federal Reserve System.
ACTION: Proposed rulemaking.
The Board is proposing to
clarify the meaning of participations in
bankers' acceptances for purposes of the
bankers' acceptance limitations of the
Bank Export Services Act.
•
d a t e s : Comments must be received by
August 5,1983.
ADDRESS: Interested parties are invited
to submit written data, view s, or
arguments concerning the proposed rule
to William W. W iles, Secretary, Board
of Governors of the Federal Reserve
System, 20th Street and Constitution
Avenue, NW., Washington, D.C. 20551,
or such comments may be delivered to
room B-2223 betw een 8:45 a.m. and 5:15
p.m. Comments may be inspected in
room B-1122 between 8:45 a.m. and 5:15
p.m., except as provided in section
261.6(a) of the Board’s Rules Regarding
Availability of Information (12 CFR
261.6(a)).
SUMMARY:
FOR FURTHER INFORMATION CONTACT:
Gilbert T. Schwartz, A ssociate General
Counsel (202/452-3625), or Robert G.
Ballen, Attorney (202/452-3265), Legal
Division, Board of Governors of the
Federal Reserve System, Washington,
D.C. 20551.
SUPPLEMENTARY in f o r m a t io n : Section
207 of the Bank Export Services Act
(Title II of Pub. L. 97-290) ("BESA”)
provides that a member bank or a
Federal or State branch or agency in the
United States w hose parent foreign
bank has, or is controlled by a foreign
company or companies that have, more
than $1 billion in total worldwide
consoldiated bank assets, may create
eligible bankers’ acceptances (“BAs”)1
in the aggregate up to 150 percent of its
paid up and unimpaired capital stock
and surplus and, with the permission of
the Board, up to 200 percent of its paid
up and unimpaired capital stock and
surplus (“capital”) (12 U.S.C. 372).
Section 207 also prohibits these
institutions from creating eligible BAs
for any one person in the aggregate in
1 An eligible BA is a BA that meets the criteria of
the seventh paragraph of section 13 of the Federal
Reserve Act (12 U.S.C. 372).
excess of 10-percent of the institution’s
capital. Eligible BAs growing out of
domestic transactions are not to exceed
50 percent of the aggregate of all eligible
acceptances authorized for such an
institution.
This section of the BESA also
provides that any portion of an eligible
BA created by an institution subject to
the bankers’ acceptance limits
contained therein (“covered bank”) that
is conveyed through a participation to
another covered bank shall not be
included in the calculation of the
creating bank’s BESA limits. However,
the amount of the participation is to be
applied to the BA limits applicable to
the covered bank receiving the
participation.
The language of the statute does not
define what constitutes such a
participation for purposes of the
applicability of the BESA limitations.
However, the statute does authorize the
Federal Reserve Board to further define
any of the terms used in section 207 of
the BESA (12 U.S.C. 372(7}(G)). In
addition, the legislative history of this
statute indicates that Congress took
note of and encouraged a then ongoing
analysis by the Federal Financial
Institutions Examination Council
("Council”) on participations in BAs and
required the Council to report to the
appropriate congressional committees.
H. Rep. No. 97-924, 97th Cong., 2nd Sess.
25 (1982). In its report to Congress of
March 25,1983, the Council stated that it
w as not addressing the matter of the
definition of a participation in eligible
BAs for purposes of determining
compliance with the BESA limits
because the statute specifically granted
the Board the authority to define further
any of the terms used in section 207.
The Board is proposing for public
comment a clarification of the meaning
of participations in BAs for purposes of
the BESA limitations. The proposed
interpretation describes the minimum
requirements that such a participation
would have to meet if the eligible BA (or
portion thereof) that the participation
conveys is to be excluded from the BA
limitations applicable to the bank
creating the BA. Commenters may wish
to address whether the Board should
impose additional minimum
requirements upon such participations—
in addition to commenting on other
aspects of the proposals.
The impact of this proposal on small
entities had been considered in
accordance with section 603 of the
Regulatory Flexibility Act (Pub. L 96354; 5 U.S.C. 603). The Board’s proposal
w ill provide small member banks that
are covered by the BESA limitations
with increased flexibility with regard to
the usage of eligible BAs. No new
recordkeeping or reporting requirements
will be imposed as a results of this
action.
List o f Subjects in 12 CFR Part 250
Federal Reserve System.
PART 250—[AMENDED]
Pursuant to its authority under the
seventh paragraph of section 13 of the
Federal Reserve Act (12 U.S.C. 372), the
Board of Governors proposes to amend
12 CFR Part 250— Miscellaneous
Interpretations—by adding a new
§ 250.165 to read as follows:
§ 250.165 Bankers’ acceptances: definition
o f participations.
(a)(1) Section 207 of the Bank Export
Services Act (Title II of Pub. L. 97-290)
(“BESA”) raised the limits on the
aggregate amount of eligible bankers’
acceptances (“BAs”) that may be
created by a member bank from 50
percent (or 100 percent with the
permission of the Board) of its paid up
an unimpaired capital stock and surplus
(“capital”) to 150 percent (or 200 percent
with the permission of the Board) of its
capital. Section 207 also prohibits a
member bank from creating eligible BAs
for any one person in the aggregate in
excess of 10 percent of the institution’s
capital. Eligible BAs growing out of
domestic transactions are not to exceed
50 percent of the aggregate of all eligible
acceptances authorized for a member
bank. This section of the BESA applies
the same limits applicable to member
banks to U.S. branches and agencies of
foreign banks that are subject to reserve
requirements under section 7 of the
International Banking Act of 1978 (12
U.S.C. 3105).
(2)
This section of the BESA also
provides that any portion of an eligible
BA created by an institution subject to
the BA limitations contained therein
(“covered bank”) that is conveyed
through a participation to another
covered bank shall not be included in
the calculation of the creating bank's
limits. The amount of the participation is
subject to the BA limitations applicable
to the covered bank purchasing the
participation. The language of the
statute does not define what constitutes
such a participation. However, the
statute does authorize the Board to
further define any of the terms used in
section 207. The Board is clarifying the
term participation for purposes of the
BA limitations of the BESA.
(b) The legislative history of section
207 of the BESA indicates that Congress
intended that the bank receiving the
participation (“junior bank”) be
obligated to the creating bank conveying
the participation (“senior bank") in the
event that the account party defaults on
its obligation to pay, but that the junior
bank need not also be obligated to pay
the holder of the acceptance at the time
the BA is presented for payment. H. Rep.
No. 97-629, 97th Cong., 2nd Sess. 15
(1982); 128 Cong. Rec. H 4647 (daily ed.
July 27,1982) (remarks by Rep. Barnard);
and 128 Cong. Rec. H 8462 (daily ed.
October 1,1982) (remarks by Rep.
Barnard). The legislative history also
indicates that Congress intended that
eligible BAs in which participations had
been conveyed not be required to
indicate the name(s) (or interest(s)) of
the junior bank(s) on the acceptance in
order for the BA to be excluded from the
BESA limitations applicable to the
senior bank. 128 Cong. Rec. S 12237
(daily ed. September 24,1982) (remarks
of Senators Heinz and Gam); and 128
Cong. Rec. H 4647 (daily ed. July 27,
1982) (remarks of Rep. Barnard).
under which the junior bank acquires
that is enforceable in the event the
the senior bank’s claim against the
account party fails to perform in
account party to the extent of the
accordance with the terms of the
amount of the particpation that is
acceptance. Similarly, the junior bank
enforceable in the event that the
has a corresponding claim against the
account party fails to perform in
account party to the extent of the
accordance with the terms of the
amount of the participation that is
acceptance. The agreement betw een the enforceable in the event the account
senior bank and the account party must
party fails to perform in accordance
indicate that the rights that the senior
with the terms of the acceptance.
bank acquires under the agreement are
assignable by the senior bank, and
(d) The Board stressed that both the
(ii)
The agreement between the juniorjunior bank’s claim on the account party
and senior bank provides that the senior and the senior bank’s claim on the junior
bank obtains a claim against the junior
bank involve risk. Therefore, it is
bank to the extent of the amount of the
essential that these risks be assessed by
participation that is enforceable in the
the banks involved in accordance with
event the account party fails to perform
high credit standards. The junior bank
in accordance with the terms of the
should review the creditworthiness of
acceptance.
each account party on a case-by-case
(2) An eligible BA that is conveyed
through a participation that does not
satisfy these minimum requirements
would continue to be included in the BA
limits applicable to the senior bank.
Further, an eligible BA conveyed to a
covered bank through a participation
that provided for additional rights and
obligations among the parties would be
excluded from the BESA limitations of
the senior bank provided the minimum
requirements were satisfied.
(c)
(1) In view of Congressional intent
(3) A participation structured pursuant
with regard to what constitutes a
to
these minimum requirements would
participation in an eligible BA, the
Board has determined that, for purposes be as follows: Upon the conveyance of
the participation, the senior bank retains
of the BESA limits, a participation must
its entire obligation to pay the holder of
satisfy the following two minimum
the BA at maturity. The senior bank has
requirements:
(i)
A written agreement entered into a claim against the junior bank to the
between the junior and senior bank
extent of the amount of the participation
4
basis before it acquires a participation
and the senior bank should review the
creditworthiness of the junior bank. The
examiners will ensure that these
creditworthiness reviews are
appropriately effected. Similarly, the
Board has determined that it is
appropriate that the actual assets
acquired be included for purposes of
assessing capital adequacy and
determining compliance with capital
guidelines.
(e) The Board believes that these
minimum requirements reflect the nature
of the relationships involved. This
treatment of participations in eligible
BAs is analogous to the treatment of
participations in the context of loans
and is consistent with safety and
soundness considerations.
F E D E R A L RE S E R V E SYSTEM
REGULATION D
12 C F R Part
[Docket No.
204
R-0451]
R E S E R V E R E Q U I R E M E N T S OF D E P O S I T O R Y I N S T I T U T I O N S
Inel i g i b l e Bankers'
Acceptances
AGENCY:
Board of G o v e r n o r s of the Federal
ACTION:
Final
Reserve System.
rule.
SUMMARY:
The
Board
has
am e n d e d
R e g u l a t i o n D — R e s erve
R e q u i r e m e n t s of D e p o s i t o r y I n s t i t u t i o n s (12 C F R Part 2 0 4 ) — to
a p ply reserve r e q u i r e m e n t s to bankers' a c c e p t a n c e s ("BAs") that
do not meet the cr i t e r i a of s e c tion 13 of the F e d eral R e s erve
Act ("ineligible BAs") r e g a r d l e s s of w h e ther the instrument is
d i s c o u n t e d and resold b y the d e p o s i t o r y i n s t i t u t i o n that
c r e ated it.
Previously, an i n e l igible a c c e p t a n c e was r e g arded
as r e s e r v a b l e o n l y if the i n s t i t u t i o n that c r e ated it als o
d i s c o u n t e d and resold it.
The p u r p o s e of this a m e n d m e n t is to
pr e v e n t the a v o i d a n c e of r e s erve r e q u i r e m e n t s t h rough the use
of third p a r t i e s that w o uld d i s c o u n t and resell an i n e l igible
a c c e p t a n c e cr e a t e d b y a d e p o s i t o r y institution.
E F F E C T I V E DATE:
Jun e 20,
1983.
FOR FURTHER
INFORMATION
CONTACT:
Gilbert
T.
Schwartz,
A s s o c i a t e G e n e r a l C o u n s e l (202/452-3625); or Robert G. Ballen,
A t t o r n e y (202/452-3265), L e gal Division, Board of G o v e r n o r s of
the F e d e r a l R e s e r v e System, Washington, D.C. 20551.
SUPPLEMENTARY
INFORMATION:
S e c t i o n 19(a)
of
the
Federal
Reserve A ct a u t h o r i z e s the B o a r d to d e t e r m i n e what types of
o b l i g a t i o n s are res e r v a b l e d e p o s i t s
(12 USC § 461(a)).
In
addition, se c t i o n 19(a) g r a n t s the Board a u t h o r i t y to p r e s c r i b e
r e g u l ations
necessary
to
prevent
e v a sions
of
reserve
requirements.
Agented
i n e l igible
BAs.
Regulation D previously
re g a r d e d an inel i g i b l e BA as a res e r v a b l e l i a b i l i t y o n l y if it
was created, discounted,
and sold by the same d e p o s i t o r y
institution.
Some
b a nks
have
re c e n t l y
entered
into
a r r a n g e m e n t s wit h b r o k e r s and other third p a r t i e s that p r o v i d e
For this Regulation to be complete, retain:
1) Regulation D pamphlet, amended effective December 31, 1981.
2) Amendments effective April 28, 1982, April 29, 1982, September 1, 1982, October 28, 1982,
December 9, 1982, December 14, 1982, December 30, 1982, December 31, 1982, January 5,
1983, January 13, 1983, March 31, 1983, April 28, 1983, and February 2, 1984.
3) This slip sheet.
[Enc. Cir. No. 9519]
-2-
for the c r e a t i o n of an i n e l i g i b l e BA b y the b a n k and the
subsequent di s c o u n t and resale by the third party.
Since the
bank c r e a t i n g the BA did not d i s c o u n t and resell the
acceptance, it p r e v i o u s l y was not re q u i r e d to m a i n t a i n reserves
against the BA.
Similarly, if the third p a r t y that d i s c o u n t e d
and resold the BA p u r s u a n t to such an a r r a n g e m e n t was a
d e p o s i t o r y institution, it w o uld not be subject to r e s erve
r e q u i r e m e n t s on the t r a n s a c t i o n since it did not c r e a t e the BA.
The B o a rd's p r o p o s a l .
The Board b e l i e v e d these
arrangements
serve o n l y as a d e v i c e
to a v oid
reserve
requirements
under
R e g u l a t i o n D.
A ccordingly,
the
B o ard
p r o p o s e d to a m end R e g u l a t i o n D such that the c r e a t i o n of an
i neligible BA that is o u t s t a n d i n g results in a r e s e r v a b l e
d e p osit r e g a r d l e s s of w h e t h e r the d e p o s i t o r y i n s t i t u t i o n that
creates
the
BA
subsequently
discounts
and
sells
it.
48 F.R. 5750 (Feb. 8, 1983).
The Board s p e c i f i c a l l y r e q u e s t e d
comment on w h e t h e r r e s erve r e q u i r e m e n t s should be a p p l i e d o n l y
to a g e n t e d BA t r a n s a c t i o n s and h o w such a g e n t e d a r r a n g e m e n t s
could be identified.
The Board als o p r o p o s e d
that the
a m e n d m e n t a p p l y to o u t s t a n d i n g i n e l i g i b l e BAs that w ere c r e a t e d
after the a n n o u n c e m e n t of the p r o p o s e d amendment.
D i s c u s s i o n of c o m m e n t s . The Board r e c e i v e d a total of
24 comments.
T h i r t e e n of the c o m m e n t e r s favored the Bo a r d ' s
proposal,
ten c o m m e n t e r s o p p o s e d
the proposal,
and one
c o m m e n t e r e x p r e s s e d no opinion.
The p r i n c i p a l r e a s o n these
c o m m e n t e r s c i ted for s u p p o r t i n g the p r o p o s a l was the need to
e l i m i n a t e a "loophole" t h r o u g h w h i c h r e s erve r e q u i r e m e n t s could
be avoided.
C o m m e n t e r s op p o s e d to the p r o p o s a l gav e the f o l l o w i n g
reasons for their opposition:
a g e n t e d i n e l i g i b l e BAs o f f e r a
flexible
and cost
e f f e c t i v e m e ans
by which
depository
i n s t i t u t i o n s can respond to the short term c r e d i t needs of
their c u s t o m e r s (such as small busi n e s s e s ) and c o m p e t e w i t h the
c o m m e r c i a l p a p e r market and w i t h fo r e i g n b a n k s
in the
i n t e r n a t i o n a l market; inel i g i b l e a g e n t e d BAs do not t h r e a t e n
the s a f e t y and s o u n dness of d e p o s i t o r y i n s t i t u t i o n s b e c a u s e of
the a p p l i c a b i l i t y of lending limits; the p r o p o s a l will not
e n h a n c e m o n e t a r y p o l i c y o b j e ctives; and a g e n t e d i n e l i g i b l e BAs
affo r d
the
depository
institution
creating
the
BA
an
o p p o r t u n i t y for fee income w i t h no f u n ding risk to the
institution.
Four of the c o m m e n t e r s s u g g e s t e d that if the p r o p o s a l
is adopted, it should not a p p l y to all i n e l i g i b l e BAs, b ut o n l y
to c e r t a i n a g e n t e d inel i g i b l e BAs.
However,
none of the
c o m m e n t e r s ind i c a t e d h o w an i n e l i g i b l e B A t r a n s a c t i o n s u b j e c t
to the p r o p o s a l could be i d e n t i f i e d from an i n e l i g i b l e BA
t r a n s a c t i o n not
subject
to the
proposal.
Indeed,
two
-3-
com m e n t e r s in favor of the p r o p o s a l s p e c i f i c a l l y recognized
that w h e r e the d i s c o u n t e r or seller of a BA was dif f e r e n t from
the d e p o s i t o r y i n s t itution that created the BA, the Board would
be unab l e to d e t e r m i n e w h e t h e r the d i s c o u n t i n g and sale
oc c u r r e d p u r s u a n t to a p r e a r r a n g e d agented BA transaction.
Finally, five c o m m e n t e r s stated that a p p lying a final
rule
to o u t s t a n d i n g
ineligible
BAs
c r e ated
after
the
a n n o u n c e m e n t of the Board's p r o p o s a l was inequitable b e c a u s e
d e p o s i t o r y insti t u t i o n s could not d i s c o n t i n u e the p r a c t i c e of
a g e nted inel i g i b l e BAs on such short notice and imposing
reserve r e q u i r e m e n t s on such a g e n t e d ineligible BAs would have
a ripple effect on the d e p o s i t o r y i n s t i tution's bu s i n e s s b e y o n d
the a g e nted i neligible BAs it h a d outstanding.
A f t e r c o n s i d e r a t i o n of the issues raised b y the
commenters, the Board has d e t e r m i n e d to amend R e g u l a t i o n D such
that an o u t s t a n d i n g inel i g i b l e BA w o uld be t r e ated as a
rese r v a b l e l i a b i l i t y reg a r d l e s s of whether the d e p o s i t o r y
inst i t u t i o n that created
the
i n e l igible BA s u b s e q u e n t l y
d i s c ounts and sells it.
R e s erve requ i r e m e n t s would not a p ply
to an i n e l i g i b l e BA that the cre a t i n g inst i t u t i o n itself
d i s c ounts and h o l d s since,
under current practices,
such
a c c e p t a n c e s are not r e g arded as a c c e p t a n c e s outstanding.
A p p l i c a t i o n of reserve r e q u i r e m e n t s to ineligible BAs
that the c r e a t i n g b a n k does not als o d i s count and sell will, as
the c o m m e n t e r s assert,
raise the cost of this type of
financing.
However,
since
agented
BAs
are
essentially
identical to other i n e l igible BA t r a n s a c t i o n s that are subject
to r e s erve requirements, the Board has d e t e r m i n e d that a g e n t e d
i neligible BAs should als o be subject to reserve requirements.
In b o t h transactions, the c r e a t i n g ban k has the same o b l i g a t i o n
to p a y the h o l d e r the face a m ount of the instrument at
maturity.
The ac c o u n t p a r t y (borrower) has the same o b l i g a t i o n
to p a y the cr e a t i n g b ank at maturity, and the b e n e f i c i a r y of
the draft has rec e i v e d funds as soon as the BA is d i s c o u n t e d
(by the c r e a t i n g b a n k in the n o n a g e n t e d case and b y the third
p a r t y in the a g e n t e d case).
The third party, not a p a r t i c i p a n t
in the n o n a g e n t e d transaction, g e n e r a l l y has e x c h a n g e d assets
(cash for the BA) b y r e s e l l i n g the BA in the s e c o n d a r y market
and h as m e r e l y a c c o m m o d a t e d the cr e a t i n g ban k (most like l y for
a fee) in p r o v i d i n g p r o c e e d s from the sale of the BA to the
b e n e f i c i a r y of the draft.
A ccordingly, the o n l y p u r p o s e of
s t r u c t u r i n g the t r a n s a c t i o n as an ag e n t e d BA a p p e a r s to be to
avoid reserv e requirements.
S i nce ineligible a c c e p t a n c e s are r e g a r d e d as close
subs t i t u t e s to ban k CDs by investors and since the c o m m ercial
a c t i v i t i e s that can be financed by ineligible a c c e p t a n c e s are
v i r t u a l l y i n d i s t i n g u i s h a b l e from those financed b y b ank CDs, if
d e s c r i b e d in se c t i o n 2 0 4 . 2 ( a )(1)(v i i ) that is issued to, or a ny
bankers' a c c e p t a n c e of the d e p o s i t o r y i n s t i t u t i o n h e l d by, a n y
o f fice located o u t s i d e the U n i t e d States of a n o t h e r d e p o s i t o r y
i n s t i t u t i o n or Edge or a g r e e m e n t c o r p o r a t i o n o r g a n i z e d under
the laws of the U n i t e d States, to a ny offi c e lo c a t e d o u t s i d e
the U n i t e d S t ates of a foreign bank, or to i n s t i t u t i o n s w h o s e
time d e p o s i t s are e x empt from interest rate l i m i t a t i o n s under
s e c tion 217.3(g) of R e g u l a t i o n Q (12 C F R 217.3(g)).
*
*
*
*
*
By o r der of the B o ard of Governors,
June
20,
1983.
(signed) William W. Wiles
W i l l i a m W. W i l e s
S e c r e t a r y of the B o a r d
-4-
ag e n t e d ineligible a c c e p t a n c e s were not reservable, control
over b ank m a n a g e d liab i l i t i e s and credit m ay well be loosened.
A g e n t e d i n e l igible BAs are not a riskless source of
fee income for the d e p o s i t o r y i n s t i t u t i o n cr e a t i n g the BA as
sug g e s t e d b y some of the commenters.
By c r e ating a BA, the
c r e ating b a n k incurs an o b l i g a t i o n to p a y the h o l d e r the amount
of the BA at m a t u r i t y and ac q u i r e s a c o r r e s p o n d i n g claim
a g a inst the ac c o u n t party.
Thus, the c r e ating bank a s s u m e s the
risk of d e f a u l t of the a c c ount party.
Further, there is no
F e d eral
l i m i t a t i o n on the a g g r e g a t e
amount
of agented
i neligible BAs a d e p o s i t o r y i n s t i t u t i o n m ay create.
The a m e n d m e n t makes r e s e r v a b l e all ineligible BAs
o u t s t a n d i n g (that are not h e l d in p o r t f o l i o by the creating
bank), r e g a r d l e s s of wh e t h e r the third p a r t y d i s c o u n t and sale
o c c u r r e d p u r s u a n t to a p r e a r r a n g e d agented BA transaction.
No
co m m e n t e r
indicated
how
agented
arrangements
could
be
identified.
The Board b e l i e v e s that where the d i s c o u n t e r or
seller of a BA is d i f f e r e n t from the d e p o s i t o r y i n s t i t u t i o n
that cr e a t e d the BA, it will in m a n y cases be difficult, if not
impossible, to d e t e r m i n e w h e t h e r the d i s c o u n t i n g and sale of
the BA has o c c u r r e d p u r s u a n t to a p r e a r r a n g e d a g e nted BA
transaction.
Indeed, it is u n l i k e l y that a b a n k would create a
BA and not be indi ectly or d i r e c t l y involved in some way with
its s u b s e q u e n t disc >unt or resale.
The Board b e l i e v e s that good cause exists to m ake this
ame n d m e n t e f f e c t i v e immediately.
Such an a c t i o n will m i n i m i z e
an y market d i s t o r t i o n s that w o uld l i kely result if the
a m e n d m e n t did not a p p l y to i n e l i g i b l e BAs issued for a p e r i o d
of time after a d o p t i o n of the final rule.
In addition, the
B o a rd's p r i o r F e b r u a r y a n n o u n c e m e n t p r o p o s i n g the a m e n d m e n t put
d e p o s i t o r y i n s t i t u t i o n s on n o t i c e that the am e n d m e n t would
a p p l y to o u t s t a n d i n g i n e l i g i b l e BAs c r e a t e d a f ter a d o p t i o n of
the final rule.
However, in v i e w of the conce r n s raised b y the
c o m m e n t e r s r e g a r d i n g a p p l y i n g this ame n d m e n t to o u t s t a n d i n g
ineligible BAs c r e a t e d after the a n n o u n c e m e n t of the Board's
p r o p o s a l on F e b r u a r y 1, 1983, but b e f o r e final a d o p t i o n of the
rule, the B o ard has d e t e r m i n e d not to a p p l y this am e n d m e n t
r e troactively.
Th e impact of this p r o p o s a l on small en t i t i e s h as b e e n
c o n s i d e r e d in a c c o r d a n c e w i t h s e c tion 604 of the R e g u l a t o r y
F l e x i b i l i t y A ct (Pub. L. 96-354; 5 USC § 604).
Se c t i o n 411 of
the G a r n - S t G e r m a i n D e p o s i t o r y I n s t i t u t i o n s A ct of 1982
(Pub. L. 97-320; 96 Stat. 1520) p r o v i d e s for an e x e m p t i o n from
r e s erve r e q u i r e m e n t s for the first $2.1 m i l l i o n in r e s e rvable
liab i l i t i e s at all d e p o s i t o r y institutions.
The Board be l i e v e s
that its a c t i o n w o u l d not add a n y reserve r e q u i r e m e n t b u r d e n to
small
depository
institutions
that
hav e
zero
reserve
-5-
r e q u i r e m e n t s as a result of s e c t i o n 411 of the G a r n - S t G e r m a i n
Act.
In addition,
small e n t i t i e s t y p i c a l l y do not issue
ineligible BAs.
No new r e c o r d k e e p i n g or r e p o r t i n g r e q u i r e m e n t s
will be imposed as a result of this action.
List of S u b j e c t s
in 12 C F R Part
204
Banks,
banking;
Currency;
Penalties; R e p o r t i n g Requirements.
Federal
Reserve
System;
P u r s u a n t to its a u t h o r i t y under s e c t i o n 19(a) of the
Federal R e s e r v e Act
(12 USC § 461(a)),
the B o ard amends
section 204.2 of R e g u l a t i o n D (12 C F R Part 204), e f f e c t i v e
June 20, 1983, b y a d ding a new s u b p a r a g r a p h (a)(l)(viii) and b y
revis i n g (c)(l)(ii) and (f)(l)(v) as follows:
S E C T I O N 204.2
*
(a)(1)
*
*
*
*
—
DEFINITIONS
*
*
*
(viii)
any l i a b i l i t y of a d e p o s i t o r y i n s t i t u t i o n
that a r ises from the c r e a t i o n after June 20, 1983, of a
bankers' a c c e p t a n c e that is not of the type d e s c r i b e d in
p a r a g r a p h 7 of s e ction 13 of the Fe d e r a l Re s e r v e A ct (12 U.S.C.
372) except any such l i a b i l i t y h e l d for the a c c o u n t of an
e n t i t y sp e c i f i e d in § 2 0 4 . 2 ( a )(1)(v i i )(A ) ; or
*
(c)(1)
*
*
*
*
*
*
*
(ii)
b o r r owings,
regardless
of
r e p r e s e n t e d b y a p r o m i s s o r y note,
an a c k n o w l e d g e m e n t of
advance,
or
similar
obligation
described
in
s e c tion 2 0 4 . 2 ( a )(1)(v i i ) that is issued to, or a n y bankers'
a c c e p t a n c e of the d e p o s i t o r y i n s t i t u t i o n h e l d by, a ny o f f i c e
located o u t s i d e the U n i t e d States of a n o t h e r d e p o s i t o r y
i n s t i t u t i o n or Edge or a g r e e m e n t c o r p o r a t i o n o r g a n i z e d under
the laws of the U n i t e d States, to a ny o f f i c e l o c ated o u t s i d e
the U n i t e d States of a f o r eign bank, or to i n s t i t u t i o n s w h o s e
time d e p o s i t s are exempt from interest rate l i m i t a t i o n s under
s e c t i o n 217.3(g) of R e g u l a t i o n Q (12 C F R 217.3(g)); and
*
(f)(1)
note,
an
*
*
*
*
*
*
*
(v)
a time d e p o s i t r e p r e s e n t e d b y a p r o m i s s o r y
a c k n o w l e d g e m e n t of advance, or a similar o b l i g a t i o n
maturit
BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
APPLICATION OF BANK EXPORT SERVICES ACT
TO ELIGIBLE BANKERS’ ACCEPTANCES
(effective July 2 0 , 1983)
FEDERAL RESERVE SYSTEM
SUPPLEMENTARY INFORMATION:
12 CFR Part 250
The BESA
[Docket No. R-0453]
Miscellaneous Interpretations
AGENCY: Board of Governors of the
Federal Reserve System.
a c t io n : Final rule.
SUMMARY: The Board has clarified the
meaning of the seventh paragraph of
section 13 of the Federal Reserve Act as
amended by the Bank Export Services
Act (Title II of Pub. L 97-290) (“BESA”).
This clarification covers the treatment of
(1) participations in BAs that are created
by institutions subject to such
limitations of the BESA and sold to
institutions not subject to such
limitations, (2) participations in BAs that
are created by institutions not subject to
the limitations of the BESA and sold to
institutions subject to such limitations,
(3) the limitation on BAs growing out of
domestic transactions, and (4) the dollar
equivalent of the paid up capital and
surplus of the foreign bank parent of
U.S. branches and agencies subject to
the limitations of the BESA.
EFFECTIVE DATE:
July 20, 1983.
FOR FURTHER INFORMATION CONTACT:
Gilbert T. Schwartz, A ssociate General
Counsel (202/452-3625), or Robert G.
Ballen, Attorney (202/452-3265), Legal
Division, Board of Governors of the
Federal Reserve System, Washington,
D .C .20551.
Section 207 of the BESA provides that
a member bank or a Federal or State
branch or agency in the United States
w hose parent foreign bank has, or is
controlled by a foreign company or
companies that have, more than $1
billion in total worldwide consolidated
bank assets, may create eligible
bankers’ acceptances (“BAs”) *1 in the
aggregate up to 150 per cent of its paid
up and unimpaired capital stock and
surplus ("capital”) and, with the
permission of the Board, up to 200 per
cent of its capital (12 U.S.C. 372). Section
207 also prohibits these institutions
("covered banks”) from creating eligible
BAs for any one person in the aggregate
in excess of 10 per cent of the
institution's capital. Eligible BAs
growing out of domestic transactions
may not exceed 50 per cent of the
aggregate of all acceptances authorized
for a covered bank.
Section 207 of the BESA also provides
that any portion of an eligible BA
created by a covered bank that is
conveyed through a participation to
another covered bank shall not be
included in the calculation of the
individual creating bank’s BA limits.
However, the amount of the
participation is to be applied to the BA
limits applicable to the covered bank
receiving the participation.
1An eligible BA is a BA that meets the criteria of
the seventh paragraph of section 13 of the Federal
Reserve Act (12 U.S.C. 372).
For purposes of determining the BA
limits applicable to U.S. branches and
agencies of foreign banks, the statute
provides that a branch’s or agency’s
capital is to be calculated as the dollar
equivalent of the capital of the parent
foreign bank as determined by the
Federal Reserve.
The Board’s proposed interpretation.
The Board proposed for public
comment in February a clarification of
the meaning of the seventh paragraph of
section 13 of the Federal Reserve Act, as
amended by section 207 of the BESA. 48
FR 5570 (Feb. 7,1983). Under the
proposal, an eligible BA created by a
covered bank that is conveyed through a
participation to an institution that is not
subject to the limitations of BESA would
continue to be included in the
limitations applicable to the creating
covered bank. The Board proposed that
since Edge Corporations, liked covered
banks, are subject to separate per
customer and aggregate BA limits, an
eligible BA created by a covered bank
that is conveyed through a participation
to an Edge Corporation would be
included in the calculation of the limits
applicable to the Edge Corporation and
not in the calculation of the limits
applicable to the creating covered bank.
In addition, under the proposal, a
participation conveyed to a covered
bank from an institution not covered by
the limitations of the BESA would be
included in the calculation of the limits
applicable to the receiving covered
bank.
As to the application of the BESA
PRINTED IN NEW YORK, FROM FEDERAL REGISTER, VOL. 48. NO. 123
|Enc. Cir. No. 9519]
limitations to U.S. branches and
agencies of foreign banks, the Board
proposed that the parent of a U.S.
branch or agency of a foreign bank be
the same as for reserve requirement
purposes; that is the bank entity that
ow ns the branch or agency most
directly. The procedures currently used
for purposes of reporting to the Board on
the Annual Report of Foreign Banking
Organizations, Form F.R. Y-7, were
proposed to be used in the calculation of
the BA limits applicable to U.S.
branches and agencies of foreign banks.
(The F.R. Y-7 generally requires
financial statements prepared in
accordance with local accounting
practices and an explanation of the
accounting terminology and the major
features of the accounting standards.)
Conversions to the dollar equivalent of
the worldwide capital of the foreign
bank would be made periodically.
Finally, the Board proposed that the
50 per cent limitation on eligible BAs
that grow out of domestic transactions
apply to the maximum permissible
amount of eligible BAs (150 to 200 per
cent of capital] that a covered bank
could issue, regardless of the bank’s
amount of eligible BAs outstanding.
Discussion of Comments
The Board received a total of 29
comments. Comments were received
from 14 depository institutions, 11
Reserve Banks, the Institute of Foreign
Bankers, the American Bankers
Association, the California Bankers
Association, and the Bankers'
Association for Foreign Trade. The
commenters generally supported the
Board's proposals.
Ten commenters suggested that an
eligible BA created by a covered bank
that is conveyed through a participation
to an institution not subject to the
limitations of the BESA should not be
included in the calculation of the limits
of the creating covered bank. These
commenters argued that the Board’s
proposal to include such BAs in the
creating covered bank’s BA limits was
not in accord with the purpose of the
BESA to provide smaller banks with
more flexibility in providing acceptance
financing and restricted otherwise
desirable efforts of covered banks to use
participations in BAs to diversify risk.
After consideration of the comments,
the Board continues to believe that the
BESA permits a covered bank to
exclude an eligible BA it has created
from its BA limits if the BA is conveyed
through a participation on ly to another
co vered bank.** This ensures that the
total amount of eligible BAs that may be
created by a ll covered banks does not
exceed the limits established by
Congress— 150 or 200 per cent o f the
capital of all covered banks.* To
conclude otherwise would permit
covered banks to create eligible BAs
without limit by selling participations to
institutions not covered by the Act. In
addition, this promotes the
Congressional intent, at least with
respect to covered banks, to “place all
banks, foreign and domestic, on an
equal footing and under the sam e legal
requirements.’’4 To conclude otherwise
would provide an advantage to foreign
banks by permitting covered banks to
convey participations to foreign banks
without limit w hile conveyance of
participations to domestic covered
banks would be limited to 150 or 200 per
cent of the capital of the recipient
domestic bank. Finally, this provision
ensures that participations in eligible
acceptances are not used as a device for
avoidance of reserve requirements. To
conclude otherwise would permit
covered banks to avoid reserve
requirements by creating an unlimited
amount of reserve-free obligations by
conveying participations in eligible BAs
to institutions not covered by the Act.
In this regard, the Board also has
determined that an eligible BA created
by a covered bank that is conveyed
through a participation to an Edge or
Agreement Corporation should continue
to be included in the calculation of the
creating covered bank’s BA limits, even
though Edge and Agreement
Corporations are subject to separate
aggregate and per customer BA limits.
First, Edge and Agreement Corporations
are not specifically included within the
BESA definition of a covered bank.
Second, if an eligible BA created by a
covered bank that is conveyed through a
participation to an Edge or Agreement
Corporation is excluded from the
* Specifically, section 207 of the BESA states that,
“with respect to an institution which issues an
acceptance, the limitations contained in this
paragraph shall not apply to that portion of an
acceptance which is issued by such institution and
which is covered by a participation agreement sold
to another institution" (emphasis added). The term
“institution" is defined in the section as [a]ny
member bank and any Federal or State branch or
agency of a foreign bank subject to reserve
requirements under section 7 of the International
Banking Act of 1978."
»12 U.S.C. 372(7) (A). (B). (C), and (F).
• 128 Cong. Rec. H4647 (daily ed. July 27,1982)
(remarks of Rep. Barnard); 128 Cong. Rec. H8461
(daily ed. October 1, 1982) (remarks of Rep.
Barnard).
2
calculation of the creating covered
bank’s BA limits, it would seem to
follow, as suggested by several of the
commenters, that an eligible BA created
by a covered bank that is conveyed
through a participation to other
institutions that are not covered banks
under BESA but are otherwise subject to
other BA limits should also be excluded
from the calculation of the creating
covered bank's BA limits. This would
expand the exception to state
nonmember depository institutions
subject to BA limits pursuant to state
law, certain U.S. branches and agencies
of foreign banks whose foreign bank
parent has less than $1 billion in total
worldwide-consolidated bank assets, 5
and perhaps other institutions such as
foreign banks or domestic nonmember
banks that voluntarily adopt appropriate
BA limits. Such a result could undermine
the BA limitations established by
Congress and provide a device for
avoidance of reserve requirements as
discussed above. Finally, there is no
evidence to suggest that Edge or
Agreement Corporations are having
difficulty creating their own BAs. 6The
BAs of these institutions generally are
marketable on the strength of the name
of their bank parent. Thus, special
treatment of Edge or Agreement
Corporations in this regard would not
appear to further significantly the access
of these institutions to acceptance
financing, which was a primary purpose
of BESA.
Eight of the twelve commenters that
specifically commented upon the
Board’s proposal regarding the
application of the BESA limits to U.S.
branches and agencies supported the
Board’s proposal in its entirety.
“Federal branches and agencies of foreign banks
whose parent has less than $1 billion in total
worldwide consolidated bank assets are subject to
the BA limitations of BESA pursuant to an
interpretation of the Comptroller of the Currency (12
CFR 28.101(5)). State branches and agencies of
foreign banks whose parent has less than $1 billion
in total worldwide consolidated bank assets may be
subject to comparable limits under state law.
*ln this regard, an eligible BA that is created by
an Edge or Agreement Corporation is not included
in the BA limitations applicable to the Edge or
Agreement Corporation if (1) the BA represents the
international shipment of goods, and (2) the Edge or
Agreement Corporation is fully covered by primary
obligations to reimburse it that are also guaranteed
by another bank or the Edge or Agreement
Corporation has sold a participation to another
bank. (12 CFR 211.f(ta)). Under the Board's proposal,
such a participation received by a covered bank
would be included in the calculation of the covered
bank's BA limits. A guarantee issued by a covered
hank also would be included in the calculation of
the BA limits of the covered bank.
However, two commenters suggested
alternatives to the Board’s proposed
approach of calculating the foreign bank
capital by using the same procedures as
are currently used for purposes of
reporting to the Board on the Annual
Report of Foreign Banking
Organizations, Form F.R. Y-7. (The F.R.
Y-7 generally requires financial
statements prepared in accordance with
local accounting practices and an
explanation of the accounting
terminology and the major features of
the accounting standards used in the
preparation of the financial statements)
One commenter suggested that the
Board reference its determinations as to
what constitutes member bank capital
and specifically advise foreign banks as
to which accounts may be used for
purposes of the capital calculation.
Another commenter suggested that the
Board’s capital computation include all
those items of capital and surplus that
any foreign bank would be permitted to
include for purposes of lending limit
computations in its home country.
After consideration of the comments,
the Board has determined to adopt its
proposed approach of calculating
foreign bank capital using the same
procedures as are currently used for
purposes of reporting to the Board on
the F.R. Y-7. The Board believes the first
alternative of specifying the accounts to
be included is too inflexible and
complicated in view of the differences in
the treatment of capital among
countries. The second alternative of
using the same definition that applies to
the determination of local lending limits
is similar to the approach proposed by
the Board in that they both recognize the
variations in the treatment of capital
among countries. In view of the
experience the Board has had in
determining the capital of foreign parent
banks based upon the F.R. Y-7
approach, the Board determined to
adopt the proposed approach.
Three commenters disagreed with the
proposed manner in which the effect of
foreign exchange rate fluctuations
would be taken into account in the
calculation of the worldwide capital of
the parent foreign bank. While these
commenters indicated that they
appreciated the Board’s concern with
the problem of foreign exchange
fluctuations, these commenters
preferred a rule (such as quarterly
conversion to dollars) rather than the
flexible case-by-case approach
proposed by the Board. To
accommodate the concerns of these
commenters, the Board has determined
that such conversions to the dollar
equivalent of the worldwide capital of
the foreign bank be made periodically,
but in no event less frequently than
quarterly.
Two commenters indicated that it
may be difficult to determine the
compliance of U.S. branches and
agencies of the same foreign bank where
the branches and agencies are located in
more than one state. (The BESA requires
that the BA activity of all branches and
agencies of the same foreign bank be
aggregated.) Accordingly, the Board has
determined that each foreign bank is to
be responsible for coordinating the BA
activity of its U.S. branches and
agencies (including the aggregation of
such activity) and establish procedures
that ensure that examiners will be able
to determine compliance with the BESA
limits.
With respect to the limitation on
eligible BAs growing out of domestic
transactions, all eight commenters that
commented specifically on this aspect of
the proposal supported the Board's
proposal that this 50 per cent limitation
apply to the maximum permissible
amount of eligible BAs (150 or 200 per
cent of capital), regardless of the bank’s
amount of eligible acceptances
outstanding. Accordingly, the Board has
adopted its proposal with regard to the
BESA limitation on eligible BAs growing
out of domestic transactions.
The impact of this proposal on small
entities has been considered in
accordance with section 604 of the
Regulatory Flexibility Act (Pub. L. 96354; 5 U.S.C. 604). The Board’s
clarification will provide small member
banks that are covered by the BESA
limitations with increased flexibility
with regard to the usage of eligible BAs.
No new recordkeeping or reporting
requirements will be imposed as a result
of this action.
List of Subjects in 12 CFR Part 250
Federal Reserve System.
Pursuant to its authority under the
seventh paragraph of section 13 of the
Federal Reserve Act (12 U.S.C. 372), the
Board of Governors amends 12 CFR Part
250—Miscellaneous Interpretations,
effective July 20,1983, by adding a new
section 250.164 to read as follows:
§250.164
Bankers’ acceptances.
(a)
Section 207 of the Bank Export
Services Act (Title II of Pub. L. 97-290)
(“BESA”) raised the limits on the
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aggregate amount of eligible bankers'
acceptances ("BAs”) that may be
created by an individual member bank
from 50 per cent (or 100 per cent with
the permission of the ]3oard) of its paid
up and unimpaired capital stock and
surplus ("capital”) to 150 per cent (or 200
per cent with the permission of the
Board) of its capital. Section 207 also
prohibits a member bank from creating
eligible BAs for any one person in the
aggregate in excess of 10 per cent of the
institution's capital. This section of the
BESA applies the same limits applicable
to member banks to U.S. branches and
agenpies of foreign banks that are
subject to reserve requirements under
section 7 of the International Banking
Act of 1978 (12 U.S.C 3105). The Board
is clarifying the proper meaning of the
seventh paragraph of section 13 of the
Federal Reserve Act, as amended by the
BESA.
(b)(1) This section of the BESA
provides that any portion of an eligible
BA created by an institution subject to
the BA limitations contained therein
(“covered bank”) that is conveyed
through a participation to another
covered bank shall not be included in
the calculation of the creating bank’s BA
limits. The amount of the participation is
to be applied to the calculation of the
BA limits applicable to the covered bank
receiving the participation. Although a
covered bank that has reached its 150 or
200 percent limit can continue to create
eligible acceptances by conveying
participations to other covered banks.
Congress has in effect imposed an
aggregate limit on the eligible
acceptances that may be created by dll
covered banks equal to the sum of 150 or
200 percent of the capital of all covered
banks.
(2)
The Board has clarified that under
the statute an eligible BA created by a
covered bank that is conveyed through a
participation to an institution that is not
subject to the limitations of this section
of the BESA continues to be included in
the calculation of the limits applicable
to the creating covered bank. This will
ensure that the total amount of eligible
BAs that may be created by covered
banks does not exceed the limitations
established by Congress. In addition,
this ensures that participations in
acceptances are not used as a device for
the avoidance of reserve requirements.
Finally, this promotes the Congressional
intent, with respect to covered banks,
that foreign and domestic banks be on
an equal footing and under the same
legal requirements.
(3)
In addition, the amount of a
participation received by a covered
bank from an institution not covered by
the limitations of the Act is to be
included in the calculation of the limits
applicable to the covered bank receiving
the participation. This result is based
upon the language of the statute which
includes within a covered bank’s limits
on eligible BAs outstanding the amount
of participations received by the
covered bank. This provision reflects
Congressional intent that a covered
bank not be obligated on eligible
bankers’ acceptances, and
participations therein, for an amount in
excess of 150 or 200 percent of the
institution’s capital.
(c)
The statute also provides that
eligible acceptances growing out of
domestic transactions are not to exceed
50 percent of the aggregate of all eligible
acceptances authorized for covered
banks. The Board has clarified that this
50 percent limitation is applicable to the
maximum permissible amount of eligible
BAs (150 or 200 percent of capital),
regardless of the bank’s amount of
eligible acceptances outstanding. The
statutory language prior to the BESA
amendment made clear that covered
banks could issue eligible acceptances
growing out of domestic transactions up
to 50 percent of the amount of the total
permissible eligible acceptances the
bank could issue. The legislative history
of the BESA indicates no intent to
change this domestic acceptance
limitation.
(The FR Y-7 generally requires financial
statements prepared in accordance with
local accounting practices and an
explanation of die accounting
terminology and the major features of
the accounting standards used in the
preparation of the financial statements.)
Conversions to the dollar equivalent of
the worldwide capital of the foreign
bank should be made periodically, but
(d)
The statute also provides that for in no event less frequently than
the purpose of the limitations applicable
quarterly. In this regard, the Board
to U.S. branches and agencies of foreign
recognizes the need to be flexible in
banks, a branch’s or agency’s capital is
dealing with the effect of foreign
to be calculated as the dollar equivalent
exchange rate fluctuations on the
of the capital stock and surplus of the
calculation of the worldwide capital of
parent foreign bank as determined by
the parent foreign bank. Each foreign
the Board. The Board has clarified that
bank is to be responsible for
for purposes of calculating the BA limits
coordinating the BA activity of its U.S.
applicable to U.S. branches and
branches and agencies (including the
agencies of foreign banks, the identity of
aggregation of such activity) and
the parent foreign bank is generally the
establishing procedures that ensure that
same as for reserve requirement
examiners will be able readily to
purposes; that is, the bank entity that
determine compliance with the BESA
owns the branch or agency most
limits.
directly. The Board has also clarified
that the procedures currently used for
purposes of reporting to the Board on
By order of the Board of Governors, June
the Annual Report of Foreign Banking
20,1983.
Organizations, Form FR Y-7, are also to
William W. Wiles,
be used in the calculation of the
Secretary of the Board.
acceptance limits applicable to U.S.
branches and agencies of foreign banks.
[FR Doc. 83-17067 Filed 6-23-83; 8:45 am]
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